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Validation Report

Araputanga Centrais Elétricas S. A.

Validation of ARAPUCEL - Small Hydroelectric Power Plants Project

Report No. 567510, Revision 2

2006, June 13

TÜV SÜD Industrie Service GmbH Carbon Management Service

Westendstr. 199 - 80686 Munich - GERMANY

Validation of the ARAPUCEL Project Page 1 of 19

Report No. Date of first issue Revision No. Date of this revision Certificate No.

567510 28th October 2005 2 13th June 2006 - Subject: Validation of a CDM Project Executing Operational Unit: TÜV SÜD Industrie Service GmbH

Carbon Management Service Westendstr. 199 - 80686 Munich Federal Republic of Germany

Client: ARAPUtanga Centrais ELétricas S. A. Rua Barão de Melgaço, 2350 – Sala 11 Cuiabá Mato Grosso, BRAZIL

Contract approved by: Michael Rumberg Report Title: Validation of the ARAPUCEL - SMALL HYDROELECTRIC

POWER PLANTS PROJECT Number of pages 19 (excluding cover page and annexes) Summary: The Certification Body ”Climate and Energy” has been ordered by ARAPUtanga Centrais ELétricas S. A. to perform a validation of the above mentioned project. Using a risk based approach; the validation of this project has been performed by document re-views and on-site inspection, audits at the locations of the project and interviews at the offices of the project developer and the project owner. As the result of this procedure, it can be confirmed that the submitted project documentation is in line with all requirements set by the Kyoto Protocol, the Marrakech Accords and relevant guidance by the CDM Executive Board. TÜV SÜD has received on May 11, 2006 the written approval by the DNA including confirmation of Brazil that the project assists in achieving sustainable development.based on our validation report rev 1 from November 9, 2005. Meanwhile were the PDD revised due to the revision 5 of CDM Methodology ACM0002. Prior to the submission of this validation report to the CDM Executive Board, TÜV SÜD will need an attestation that the issued approval of the DNA is still valid, despite of the fact that the PDD is revised and in the consequence lower emission reductions are mentioned herein. Additionally the assessment team reviewed the estimation of the projected emission reductions. We can confirm that the indicated amount of emission reductions of 748470 tonnes CO2e over a credit-ing period of seven years, resulting in a calculated annual average of 106,924 tonnes CO2e repre-sent a reproducible estimation using the assumptions given by the project documents. Work carried out by:

• Werner Betzenbichler (Project manager, GHG lead auditor)

• Odair Roveri (Lead Auditor Environmental Man-agement Systems (ISO 14001), Local expert, GHG auditor - trainee)

• Klaus Nürnberger (Lead auditor Energy Certifi-cation, GHG auditor)

Internal Quality Control by:

Michael Rumberg


Abbreviations AE Applicant Operational Entity

ANEEL Brazilian Electricity Regulatory Agency

ARAPUCEL Araputanga Centrais Elétricas S. A.

CAR Corrective Action Request

CDM Clean Development Mechanism

CER Certified Emission Reduction

CR Clarification Request

DNA Designated National Authority

DOE Designated Operational Entity

EB Executive Board

EIA / EA Environmental Impact Assessment / Environmental Assessment

ER Emission reduction

GHG Greenhouse gas(es)

KP Kyoto Protocol

MP Monitoring Plan

ONS National Electric System Operator

PDD Project Design Document

PPA Power Purchase Agreement

PROINFA Programa de Incentivo as Fontes Alternativas (=Program of Incentives to Alternative Energy Sources)

TÜV SÜD TÜV Industrie Service GmbH TÜV SÜD Group

UNFCCC United Nations Framework Convention on Climate Change

VVM Validation and Verification Manual


Table of Contents Page

1 INTRODUCTION...................................................................................................... 4 1.1 Objective 4 1.2 Scope 4 1.3 GHG Project Description 6

2 METHODOLOGY..................................................................................................... 6 2.1 Review of Documents 7 2.2 Follow-up Interviews 8 2.3 Resolution of Clarification and Corrective Action Requests 8

3 VALIDATION FINDINGS.......................................................................................... 9 3.1 Project Design 9 3.1.1 Discussion 9 3.1.2 Findings 10 3.1.3 Conclusion 11 3.2 Baseline 11 3.2.1 Discussion 11 3.2.2 Findings 12 3.2.3 Conclusion 13 3.3 Monitoring Plan 14 3.3.1 Discussion 14 3.3.2 Findings 14 3.3.3 Conclusion 14 3.4 Calculation of GHG Emissions 15 3.4.1 Discussion 15 3.4.2 Findings 15 3.4.3 Conclusion 15 3.5 Environmental Impacts 15 3.5.1 Discussion 15 3.5.2 Findings 16 3.5.3 Conclusion 16 3.6 Comments by Local Stakeholders 16 3.6.1 Discussion 16 3.6.2 Findings 16 3.6.3 Conclusion 17

4 COMMENTS BY PARTIES, STAKEHOLDERS AND NGOS.................................. 17

5 VALIDATION OPINION.......................................................................................... 19

Annex 1: Validation Checklist Annex 2: Information Reference List


1 INTRODUCTION

1.1 Objective ARAPUTANGA CENTRAIS ELÉTRICA S.A. has commissioned TÜV Industrie Service GmbH TÜV SÜD Group (TÜV SÜD) to validate the ARAPUCEL - SMALL HYDROELECTRIC POWER PLANTS PROJECT (ARAPUCEL-Project). The validation serves as design verification and is a requirement of all CDM projects. The purpose of a validation is to have an independent third party assess the project design. In particular, the project's baseline, the monitoring plan (MP), and the project’s compliance with relevant UNFCCC and host country criteria are validated in order to confirm that the project design as documented is sound and reasonable and meets the stated requirements and identified criteria. Validation is a requirement for all CDM projects and is seen as necessary to provide assurance to stakeholders of the quality of the project and its intended generation of certified emission reductions (CERs). UNFCCC criteria refer to the Kyoto Protocol criteria and the CDM rules and modalities as agreed in the Bonn Agreement and the Marrakech Accords.

1.2 Scope The validation scope is defined as an independent and objective review of the project design document, the project’s baseline study and monitoring plan and other relevant documents. The information in these documents is reviewed against Kyoto Protocol requirements, UNFCCC rules and associated interpretations. TÜV SÜD has, based on the recommendations in the Vali-dation and Verification Manual employed a risk-based approach in the validation, focusing on the identification of significant risks for project implementation and the generation of CERs. The validation is not meant to provide any consulting towards the client. However, stated re-quests for clarifications and/or corrective actions may provide input for improvement of the pro-ject design. The audit team has been provided with a draft PDD end of November 2004. Based on this documentation a document review and a fact finding mission in form of an on site audit have taken place. Afterwards the client decided to revise the PDD according to the CARs and CRs indicated in the audit process also taking into account new developments on the regulatory side (as for example the new PDD format). This PDD version submitted in May 2005 was published from May 4 until to June 3, 2005. This revised PDD serves as the starting point for the final vali-dation presented herewith. Afterwards the PDD was revised twice. First revision includes a changed crediting period, most recent numbers of daily dispatch information and new weights regarding operating margin factor and build margin factor respecting the guidance by EB. This version submitted in November 2005, which has also undergone a renewed document review, serves as the basis for the final assessment presented herewith. TÜV SÜD has received on May 11, 2006 the written approval by the DNA including confirmation of Brazil that the project assists in achieving sustainable development.based on our validation report rev 1 from November 9, 2005. Meanwhile were the PDD revised once more due to the revision 5 of CDM Methodology ACM0002. The main consequence is the lowered combined margin emission factor because the oldest plant which has to be considered in the Build Margin


must be fully included and not only in part. This version submitted in June 2006, which has also undergone a renewed document review, serves as the basis for the final assessment presented herewith. Studying the existing documentation belonging to this project, it was obvious that the compe-tence and capability of the validation team has to cover at least the following aspects: Ø Knowledge of Kyoto Protocol and the Marrakech Accords Ø Environmental and Social Impact Assessment Ø Skills in environmental auditing (ISO 14000, EMAS) Ø Quality assurance Ø Technical aspects of hydro power plants and grid operation Ø Monitoring concepts Ø Political, economical and technical random conditions in host country

According to these requirements TÜV SÜD has composed a project team in accordance with the appointment rules of the TÜV certification body “climate and energy”: Werner Betzenbichler. Werner Betzenbichler is physicist and head of the department “TÜV Carbon Management Service” located in the head office of TÜV Süddeutschland in Munich. Furthermore he is appointed as head of the certification body “Climate and Energy”, which is accredited at UNFCCC as Designated Operational Entity. Before entering this department he worked as expert on air quality measurements and emissions inventories as well as on envi-ronmental auditing within the environmental branch of the company. Odair Roveri is a consultant for quality and environmental management systems (according to ISO 9001 and ISO 14001) at Ingwaass Qualidade Continua. He is based in Sao Paulo. In his position he is responsible for the implementation of management systems. He has received ex-tensive training in the CDM validation process and participated already in several CDM project assessments. Klaus Nürnberger is head of the division energy certification at TÜV Industrie Service GmbH TÜV SÜD Group. In his position he is responsible for the implementation of verification and cer-tifications processes for electricity production based on renewable sources. The division has assessed more than 600 plants and sites all over Europe in particular hydro power plants. He has received extensive training in the CDM and JI validation processes and participated already in several CDM and JI project assessments. The audit team covers the above mentioned requirements as follows: Ø Knowledge of Kyoto Protocol and the Marrakech Accords (BETZENBICHLER / NÜRN-

BERGER) Ø Environmental and Social Impact Assessment (NÜRNBERGER / ROVERI) Ø Skills in environmental auditing (ALL) Ø Quality assurance (RUMBERG) Ø Technical aspects of hydro power plants and grid operation (NÜRNBERGER / BET-

ZENBICHLER) Ø Monitoring concepts (NÜRNBERGER / BETZENBICHLER) Ø Political, economical and technical random conditions in host country (ROVERI)


1.3 GHG Project Description The objective of the ARAPUCEL Project is to generate renewable electricity using hydro power resources and to sell the generated output to the South-Southeast-Midwest Grid on the basis of a power purchase agreement (PPA). The project activity will generate greenhouse gas (GHG) emission reductions by avoiding CO2 emissions from electricity generation by fossil fuel power plants that supply the South-Southeast-Midwest Grid, which is connected to the North- Northeast Grid of Brazil and with one interconnection to Argentinian grid. The proposed ARAPUCEL Project is located along the Jauro River within the State of Mato Grosso. The project involves the installation of 3 hydro power plants, providing a total of 74 MW. All of them are according Brazilian regulation operated as ”small hydro power plants”. Project participants are the three operators of the individual plants Araputanga Centrais Elétri-cas S. A., Arapucel Indiavaí S.A. and Arapucel Ombreiras S.A. as Project Proponents. Majority shareholder of all these Brazilian project participants is BK Energia Ltda. The project starting date is September 1, 2002 and the seven year renewable crediting period starts September 1, 2002, too.

2 METHODOLOGY The project assessment aims at being a risk based approach and is based on the methodology developed in the Validation and Verification Manual (for further information see www.vvmanual.info), an initiative of all Applicant Entities, which aims to harmonize the approach and quality of all such assessments.

In order to ensure transparency, a validation protocol was customised for the project, according to the Validation and Verification Manual. The protocol shows, in a transparent manner, criteria (requirements), means of verification and the results from validating the identified criteria. The validation protocol serves the following purposes: • It organises, details and clarifies the requirements a CDM project is expected to meet; • It ensures a transparent validation process where the validator will document how a particu-

lar requirement has been validated and the result of the validation. The validation protocol consists of three tables. The different columns in these tables are de-scribed in Figure 1. The completed validation protocol is enclosed in Annex 1 to this report.


Validation Protocol Table 1: Mandatory Requirements

Requirement Reference Conclusion Cross reference The requirements the project must meet.

Gives reference to the legislation or agreement where the requirement is found.

This is either acceptable based on evidence pro-vided (OK), or a Corrective Action Request (CAR) of risk or non-compliance with stated requirements. The corrective action requests are numbered and pre-sented to the client in the Validation report.

Used to refer to the rele-vant checklist questions in Table 2 to show how the specific requirement is validated. This is to en-sure a transparent Valida-tion process.

Validation Protocol Table 2: Requirement checklist

Checklist Question Reference Means of verifi-cation (MoV)

Comment Draft and/or Final Conclusion

The various require-ments in Table 1 are linked to checklist questions the project should meet. The checklist is organised in seven different sec-tions. Each section is then further sub-divided. The lowest level constitutes a checklist question.

Gives ref-erence to documents where the answer to the check-list question or item is found.

Explains how con-formance with the checklist question is investigated. Examples of means of verifica-tion are document review (DR) or interview (I). N/A means not appli-cable.

The section is used to elabo-rate and discuss the checklist question and/or the confor-mance to the question. It is further used to explain the con-clusions reached.

This is either acceptable based on evidence pro-vided (OK), or a Correc-tive Action Request (CAR) due to non-compliance with the checklist question (See below). Clarification is used when the valida-tion team has identified a need for further clarifi-cation.

Validation Protocol Table 3: Resolution of Corrective Action and Clarification Requests

Draft report clarifica-tions and corrective action requests

Ref. to checklist question in table 2

Summary of project owner response

Validation conclusion

If the conclusions from the draft Validation are either a Corrective Ac-tion Request or a Clari-fication Request, these should be listed in this section.

Reference to the checklist question number in Table 2 where the Corrective Action Request or Clarification Request is explained.

The responses given by the Client or other project participants during the communica-tions with the valida-tion team should be summarised in this section.

This section should sum-marise the validation team’s responses and final conclusions. The conclu-sions should also be in-cluded in Table 2, under “Final Conclusion”.

Figure 1 Validation Protocol Tables

2.1 Review of Documents The project design document submitted by the Client and additional background documents re-lated to the project design and baseline were reviewed. A complete list of all documents re-viewed is attached as annex 2 to this report.


2.2 Follow-up Interviews In the periods of December 8, 2004 and April 20 - 21, 2005 TÜV SÜD performed interviews with project stakeholders to confirm selected information and to resolve issues identified in the document review. Representatives of EcoInvest and ARAPUCEL and Alstom were interviewed. The main topics of the interviews are summarised in Table 1.

Table 1 Interview topics Interviewed organi-sation

Interview topics

EcoInvest

Ø Project design Ø Technical equipment Ø Sustainable development issues Ø Additionality Ø Crediting period Ø Monitoring plan Ø Management system Ø Environmental impacts Ø Stakeholder process Ø Approval by the host country

ARAPUCEL Ø Project design Ø Technical equipment Ø Sustainable development issues Ø Monitoring plan Ø Environmental impacts Ø Stakeholder process

ALSTOM Ø Technical equipment Ø Training programs

2.3 Resolution of Clarification and Corrective Action Requests The objective of this phase of the validation was to resolve the requests for corrective actions and clarification and any other outstanding issues which needed to be clarified for TÜV SÜD`s positive conclusion on the project design. The Corrective Action Requests and Clarification Re-quests raised by TÜV SÜD were resolved during communications between the client and TÜV SÜD. To guarantee the transparency of the validation process, the concerns raised and re-sponses that given are summarised in chapter 3 below and documented in more detail in the validation protocol in annex A.


3 VALIDATION FINDINGS

In the following sections the findings of the validation are stated. The validation findings for each validation subject are presented as follows:

1) The findings from the desk review of the final project design document and the findings from interviews during the follow up visit are summarised. A more detailed record of these findings can be found in the Validation Protocol in Annex A.

2) Where TÜV SÜD had identified issues that needed clarification or that represented a risk to the fulfilment of the project objectives, a Clarification or Corrective Action Request, respec-tively, have been issued. The Clarification and Corrective Action Requests are stated, where applicable, in the following sections and are further documented in the Validation Protocol in Annex A. The validation of the project resulted in one Corrective Action Requests and three Clarification Requests.

3) Where Clarification or Corrective Action Requests have been issued, the exchanges be-tween the Client and TÜV SÜD to resolve these Clarification or Corrective Action Requests are summarised.

4) The final conclusions for validation subject are presented.

The validation findings relate to the project design as documented and described in the final project design documentation.

3.1 Project Design 3.1.1 Discussion The current project participants are Araputanga Centrais Elétricas S.A., Arapucel Indiavaí S.A. and Arapucel Ombreiras S.A., Brazil and the Dutch Ministry of Housing, Spatial Planning and Environment (VROM). Brazil as the host contry meets all relevant participation requirements. But the project has not been approved by the national DNAs yet and no Letter of Authorization has been issued. The objective of the ARAPUCEL Project is to generate renewable electricity using hydro power resources and to sell the generated output to the South-Southeast-Midwest Grid on the basis of a power purchase agreement (PPA). The project activity will generate greenhouse gas (GHG) emission reductions by avoiding CO2 emissions from electricity generation by fossil fuel power plants that supply the South-Southeast-Midwest Grid. The project boundaries are clearly defined. The project bundles 3 installations of hydro power plants at several sites along the Jauro River in the state of Mato Grosso. During this assessment TÜV SÜD visited all plants indicated by the PDD. The project equipment can be expected to run for the whole expected operational lifetime of the project activity and it can not be expected that it will be replaced by more efficient technologies. Initial training and maintenance efforts are required. In the PDD and during the visit on site the project developer confirmed that such a training has taken place. Documentation on executed training activities has been submitted. The design engineering does reflect current good practices. The design has been professionally developed and laid out in project feasibility studies. Subsequently the power plants got the approvals by the relevant authorities. The project itself does apply state of the art equipment.


The project is in line with relevant legislation and plans of Brazil and fulfills the Brazilian requirements for run-of-river hydro power plants. Brazil has published the Interim Measures for Operation and Management of Clean Development Mechanism Projects (NDRC, June 2004). According to this document renewable energy projects belong to the favoured options under the CDM. Hence, the project can currently be seen as being in line with the host country specific requirements for CDM. The question can finally be answered after the issuance of the Letter of Approval by the Brazilian DNA. The funding for the project does not lead to a diversion of official development assistance as according to the information obtained by the audit team ODA does not contribute to the financing of the project. The starting date as well as the operational lifetime are clearly defined and also handled in a reasonable manner. The renewable crediting period is with 7 years clearly defined. But it has to be mentioned that the first three years of the crediting period will result in a lowered generation of emission reductions as during this time the project was not fully operational yet. Moreover its is assured that as the start of the crediting period is before the registration of the project that the project activities starting date falls in the period between 1 January 2000 and the registration of the first clean development mechanism project. During the validation process the audit team obtained the information and evidenced that the start of project activities has been before the registration date of the first clean development mechanism project.

3.1.2 Findings Outstanding issue: The project has not yet obtained any Letter of Approval issued by the host country and the investor country. Response: The response will be given by the issuance of the Letter of Approval. This has not happened so far for the host-country side as the approval of the project depends on the review of the validation report which has to be submitted in advance. Clarification Request No. 1: The boundaries of the regional grid should be described more detailed; the connections to other grids should be clearly identified and illustrated. Response: The revised PDD contains a detailed map of S-SE-CO grid. Part of the electricity consumed in the country is imported from other countries. Argentina, Uruguay and Paraguay supply a very small amount of the electricity consumed in Brazil. In 2003 around 0.1% of the electricity was imported from these countries. In 2004 Brazil exported electricity to Argentina which was experiencing a shortage period. The energy imported from other countries does not affect the boundary of the project and the baseline calculation. Clarification Request No. 2: It is necessary to indicate in the PDD the minimum flow required for the turbine (per turbine and total), so that it is possible to compare the values with the dry seasons flow rate which is a relevant criteria in Brazil to justify the projects as a run-of-river plant.


Response: The minimum flow rates of the turbines are indicated in the revised PDD.

Clarification Request No. 3:

The relevant indicators of preventive and conditioned based maintenance program should be delivered to the validation team.

Response:

O&M procedures were provided to the audit team, which describes the indicators of the preven-tive and conditioned based maintenance program.

Clarification Request No. 4:

The operating license of Ombreira should be submitted to the validation team as soon as avail-able.

Response:

Operating Licence of PCH Ombreiras was provided to the audit team.

3.1.3 Conclusion The Letter of Approval issued by the host country and investor country should be submitted to the audit team before requesting registration. The project fulfils the Brazilian criteria of Electrobras for run-of-river plants (“the projects where the river’s dry season flow rate is the same or higher than the minimum required for the tur-bines”). The project’s spatial boundaries are clearly described for the project installation and respective emissions reduction through electricity generation by renewable energy. The connections of S-SE-CO grid to other grids are clearly identified. The energy imported from other grids ore countries does not affect the boundary of the project and the baseline calculation. The relevant indicators of the preventive and conditioned based maintenance program are mentioned. These are i.e. thermography, chromatography of soluble gases, physically and chemically analysis of oil. The implemented preventive and conditioned based maintenance program is efficient tool to manage maintanance. The necessary licenses to construct and to operate the power plants are present.

The issues of the clarification requests above are considered to be resolved. The project does comply with the requirements.

3.2 Baseline 3.2.1 Discussion The consolidated baseline methodology applied has been approved by the CDM Executive Board and made public in September 2004.

The baseline methodology is deemed to be the one, out of the existing approved baseline methodologies, most applicable for this project by the time the PDD development started. The


PDD responds to each of the applicability criteria which are outlined in the baseline methodology. The determination of the weighted average of the operating and build margin is according the procedures provided by the chosen methodology. But data input (plant efficiencies) for estimations is based on literature figures not being considered as conservative especially for recently installed gas fired power plants. In absence of available data the project developer decided for keeping provable data instead of more conservative estimations. Anyway this discussion should have a stronger focus during verification. At that time such a risk for having an (even small) overestimation will not be acceptable.

It can be confirmed that the application, discussion and determination of the chosen baseline methodology is transparent. The application follows exactly each of the steps outlined in the methodology and answers the corresponding sections in a proper manner. The decisive factors for the baseline determination, the baseline emission factor and the capacity factor of the installed turbines, are determined in a transparent manner. The baseline emission factor was at latest adjusted due to the current revision 5 of CDM Methodology ACM0002, but during later verifications the aspect of conservativeness when determing the combined margin on figures based on plant capacity factors should be taken into account.

The baseline refers to project specific data but could also serve other renewable energy projects in the South-Southeast-Midwest Grid as a basis for their baseline establishment.

The PDD apply correctly and transparently the additionality tool as required. The statements made are proven by doumentary evidence. The additionality tool as part of the methodlogy asks for a qualitative assessment of barriers facing the proposed project. The PDD elaborates on these barriers and gives convincing arguments that the project has faced barriers which could be overcome by applying CDM to the project. It has also been considered that other hydro power projects have been implemented before at the same site without support from CDM. To do so, it has been discussed and supported by corresponding information to what extent these projects faced the same barriers and why and how the other projects could be implemented without CDM.

3.2.2 Findings Corrective action request CAR1: In Step 4. “Common Practice analysis” should be shown that the small hydro power plants, which are under construction or still under development are comparable or not comparable with the project itself. Response: A list of small hydro power plants which were currently implemented was established by project developer and provided to the audit team. The new projects under development in Brazil are inside the PROINFA-Program. Corrective Action Request CAR2: The project has been partially implemented although a registration of the project as a CDM activity has not taken place. Please describe in chapter B2 (i.e. as step 0) and based on defined documents how the CDM has been taken into account from the beginning of the project in order to demonstrate the additionality of the project. Response: At the time the project started its construction (2001) the EB was not established yet and when the project started its operation (2002) there was no approved methodology for this kind of


project. But, although those enormous uncertainties presented at the time, such as the entry into force of the Protocol, size of the market/price of the CERs, no nominated executive board, lack of approved baseline/monitoring methodologies and so on, the project owners took the risk and seriously considered the incentive from the CDM in the decision to proceed with the activity. The project sponsors were already analyzing the CDM for other projects as described in the PDD. The transfer of the ownership to the Project Sponsor BK Energia Participações Ltda. is shown by the agreement from ANEEL, July 2001. The request was made in April 2001. Corrective action request CAR3: The major risks to the baseline should be discussed in the PDD. Response: The baseline determination follows exactly what it is described in the methodology and project developer didn’t find any major risk to the baseline. Further, the guidance given by Executive Board is requesting to all project to renew the baseline every year, “ex-post”. Clarification request No. 5: The baseline should be determined using conservative assumptions, but this topic is mentioned nowhere.. It should be explained, where are conservative assumptions used by determining the baseline.

Response:

The baseline is determined according the approved methodology using default figures from literature for providing input data on plant capacities.

3.2.3 Conclusion According to the project developer the currently implemented small hydro power plants in Brazil are foreseen as CDM projects, as far as the information about those projects are available. Other projects under development are inside the PROINFA-Program, which funds renewable energy projects. The proven transfer of the ownership to the project sponsor is accepted as evidence that the project started after the non-objection letter was issued from Brazilian Interministerial Commission on Global Climate Change for the Piratini Project, therefore proving the correct application of the step 0 test of the additionality tool. The baseline is determing factors according to the applied methodology. The used emission factors can be regarded being derived transparently using default values. Nonetheless it will be necessary during verification to discuss the availability of more accurate figures for modern plants which will show higher efficiencies. Hence accurate figure for modern plants will be considered to be more conservative. In respect of determing the baseline emission factor every year ”ex-post” the risk to the baseline is very limited. The issues of the corrective action and clarification requests are considered to be resolved. The project does comply with the requirements.


3.3 Monitoring Plan 3.3.1 Discussion The monitoring methodology applied has been approved by the CDM Executive Board and made public in March 2006. The methodology is deemed to be the one out of the existing approved monitoring methodologies most applicable for this project. The PDD responds convincingly to each of the applicability criteria which are outlined in the monitoring methodology. The project itself does not cause any relevant project and leakage emissions. Hence no project and leakage emissions become reported. The monitoring plan does contain all relevant parameters in order to monitor the baseline emissions but does not detail this information in a more specific manner. Procedures for unintended emissions have not been identified as due to the project design unintended emissions can not occur. A detailed quality control and quality management system is not yet available. But as the operation of the turbines as planned is checked continiously by the control room staff, the most decisive project parameter, the electricity production, is constantly surveilled. This approach is deemed to be sufficient. All other quality relevant procedures are identified and described in the PDD.

3.3.2 Findings Corrective action request CAR4: The responsibilities for registration, monitoring, measurement and reporting are not explicit described in the PDD. The PDD should describe the responsibilities for registration, monitoring, measurement and reporting the relevant date. date. I.e. it should be mentioned that CEMAT is responsible for measuring the delivered electricity to the grid and which standard for calibration is to comply; ARAPUCEL is measuring exported electricity itself as control measurement. Response: The electricity delivered to the grid is monitored by the Project as well as by the energy buyer CEMAT. CEMAT is responsible for annually calibration, too. Monitoring and reporting will be done by Brennand Energia, the holding company that controls the three power plants. There’s nobody specific selected for this job yet.

3.3.3 Conclusion The PDD describes that electricity delivered to the grid is monitored by the project as well as by the energy buyer (CEMAT). ARAPUCEL is measuring exported electricity itself as control measurement. The responsibilities for registration, monitoring, measurement and reporting are sufficiently clarified. The project does comply with the requirements.


3.4 Calculation of GHG Emissions 3.4.1 Discussion The project spatial boundaries are clearly described. Also the projects system boundaries are clearly defined. The project equipment is exactly described in technical terms and with an exact product description according the manufacturer information. The project does properly account for all relevant emissions. GHG calculations are documented in a complete and transparent manner All emission reduction estimations have been determined according to the methodology applied at this project.

3.4.2 Findings Clarification request Nr. 6: Please add information concerning in the GHG emission reductions estimation! It is not indicated in the PDD that conservative assumptions have been used for calculating baseline emissions. Which uncertainties are in the GHG emission estimates?

Response:

See revised PDD.

3.4.3 Conclusion The estimation of emissions reductions is done by an MS Excel spreadsheet correctly imple-menting the algorithm and procedures provided by ACM0002. But data input (plant efficiencies) concerning the emissions of thermal power plants connected to the grid is based on literature figures not being considered as conservative especially for recently installed gas fired power plants. In absence of available data the project developer decided for keeping provable data instead of more conservative estimations. Anyway this discussion should have a stronger focus during verification. At that time such a risk for having an (even small) overestimation will not be acceptable.

With regard to the statements given above the issue is considered to be resolved.

The estimation of the projected emission reductions represents a reproducible estimation using the assumptions given by the project documents.

3.5 Environmental Impacts 3.5.1 Discussion The project will create few adverse environmental impacts. The environmental impacts are not considered significant. The description of the relevant impacts is done in detail in the ”Preliminary Environmental Reports”. Annually the supervision of some impacts must be monitored and reported in a environmental report. The Project design addresses environmental impacts; with proper designed turbines it is possible to operate the power plants with the average flow in the dry season. Therefore it can


be prevented mostly to stop the machines and to store water. The power plants are designed and operated so that a biological minimum flow through original river bed is guaranteed. Smaller areas which will be flooded are deforested and construction sites will be reforested after finished construction works. Requirements for EIAs exist in the host country and have already been fulfilled.

3.5.2 Findings No other findings.

3.5.3 Conclusion The project does comply with the requirements.

3.6 Comments by Local Stakeholders 3.6.1 Discussion A formal consultation process with local stakeholders has taken place in parallel to the validation process and corresponding information has been submitted to the audit team. Although this fact led to missing information in the PDD when making it publicly available no global stakeholder expressed any concern on that fact. No local stakeholder process is required according to national legislation. The comments to the latest project design have been provided. In order to consider the comments made also in the future a continious communication with the local stakeholders is envisaged.

3.6.2 Findings Clarification Request No. 7:

In addition to the UNFCCC global stakeholder process, this project was open for comments from locals at the same time. Any comments will be disclosed after validation. When the local stakeholder process for hydro power plant Ombreira has been conducted, the information should be added to the revised PDD.

Response: In the revised PDD it is indicated that while the PDD of the project was published on the UNFCCC website the project proponent has sent letters to the relevant local stakeholders in order to invite their comments. Clarification request No. 8:

In addition to the UNFCCC global stakeholder process, this project will be open for comments from locals at the same time. The local comments should be delivered to the validation team.

Response:

The project didn’t receive any comments from the local stakeholders.


3.6.3 Conclusion There is yet no guidance by the EB available clarifying the need for repeating validation in case a final PDD differs at that item from a previous version. Hence it could be considered that there is no deviation of the existing modalities and procedures of the CDM, Therefore the project complies with the requirements.

4 COMMENTS BY PARTIES, STAKEHOLDERS AND NGOS

TÜV SÜD published the project documents on its website on May 4, 2005 and invited com-ments within 30 days, until June 3, 2005 by Parties, stakeholders and non-governmental or-ganisations. The PDD and the received comment have been publicly available under the follow-ing link:

http://www.netinform.de/KE/Wegweiser/Guide2E.aspx?Ebene1_ID=179

4.1 Content of the comments received A comment has been submitted by Axel Michaelowa, Hamburger Welt-Wirtschafts-Archiv (HWWA). HWWA is an accredited observer organisation to the United Nations Framework Con-vention on Climate Change Conference of the Parties.

The comment has the following content:

1. The project bundle has a capacity of more than 15 MW and thus does not satisfy the cri-teria for bundling. Project participants would have to submit separate PDDs. While I would like the bundling threshold to be lifted by the EB, there should be a level playing field for all developers.

2. With an IRR of 17%, the case for additionality is inconclusive. Given the strong incentive policies of the Brazilian government after the electricity crisis of 2001, there are no pro-hibitive barriers for hydropower expansion in Brazil. The small argumentation about bar-riers in the PDD is thus not convincing.

4.2 Response by TÜV SÜD The comment has been submitted during the 30 days stakeholder period and is submitted by an accredited observer organisation. Hence the comment had to be considered in the validation process. The audit team came to the following conclusion:

1. The validation team can not identify any rules which do not allow bundling of sites to one CDM project. Furthermore such rules would contradict the definition of a small scale pro-ject according to the Kyoto Protocol that a small scale project can not be part of a de-bundled project.

2. The demonstration of additionality in the PDD was assessed by the validation team. In-vestment barrier is part of demonstrating additionality. Taking into consideration the in-vestment climate in Brazil, CDM is an important incentive for the decision to implement the project. The implementation of the Brazilian PROINFA-program proves that funding


of such renewable projects is also necessary by local authorities. Moreover it is ac-cepted that projects applying for the Proinfa-program will still be eligible to use CDM. The project assessed does not go for both components, hence the statement that CDM had an important impact during the decision making process is deemed to be more reli-able.


VALIDATION OPINION

TÜV SÜD has performed a validation of the ARAPUCEL Project in the state of Mato Grosso in Brazil . The validation was performed on the basis of UNFCCC criteria and host country criteria, as well as criteria given to provide for consistent project operations, monitoring and reporting.

The review of the project design documentation and the subsequent follow-up interviews have provided TÜV SÜD with sufficient evidence to determine the fulfilment of stated criteria.

In summary, it is TÜV SÜD´s opinion that the ARAPUCEL Project, as described in the revised project design document of June 2006, meets all relevant UNFCCC requirements for the CDM, set by the Kyoto Protocol, the Marrakech Accords and relevant guidance by the CDM Executive Board and that the project furthermore meets all relevant host country criteria and correctly ap-plies the baseline and monitoring methodology ACM0002. TÜV SÜD has received on May 11, 2006 the written approval by the DNA including confirmation of Brazil that the project assists in achieving sustainable development based on our validation report rev 1 from November 9, 2005. Meanwhile the PDD was revised due to the revision 5 of CDM Methodology ACM0002. Hence, TÜV SÜD will recommend the “ARAPUCEL Project” for registration as CDM project ac-tivity by the CDM Executive Board. Prior to the submission of this validation report to the CDM Executive Board, TÜV SÜD will need an attestation that the issued approval of the DNA is still valid, despite of the fact that the PDD is revised and in the consequence lower emission reductions are mentioned herein. By displacing fossil fuel-based electricity with electricity generated from a renewable source, the project results in reductions of CO2 emissions that are real, measurable and give long-term benefits to the mitigation of climate change. An analysis of the investment and technological barriers demonstrates that the proposed project activity is not a likely baseline scenario. Emis-sion reductions attributable to the project are hence additional to any that would occur in the ab-sence of the project activity. Given that the project is implemented as designed, the project is likely to achieve the estimated amount of emission reductions.

Additionally the assessment team reviewed the estimation of the projected emission reductions. We can confirm that the indicated amount of emission reductions of 748,470 tonnes CO2e over a renewable crediting period of seven years, resulting in a calculated annual average of 106,924 tonnes CO2e represents a reproducible estimation using the assumptions given by the project documents. The validation is based on the information made available to us and the engagement conditions detailed in this report. The validation has been performed using a risk based approach as de-scribed above. The only purpose of this report is its use during the registration process as part of the CDM project cycle. Hence, TÜV SÜD can not be held liable by any party for decisions made or not made based on the validation opinion, which will go beyond that purpose. Munich, 2006-06-13 Munich, 2006-06-13

Michael Rumberg

Deputy Head of Certification Body “climate and energy“

Werner Betzenbichler

Project Manager

Validation of the ARAPUCEL Project

Annex 1

Validation Checklist

Validation of the “ARAPUCEL Project” in Mato Grosso, Brazil

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Page A-1 CDM_Validation_Protocol_ARAPUCEL, Project No. 515515 This document is a part of the Validation and Verification Manual

Table 1 Mandatory Requirements for Clean Development Mechanism (CDM) Project Activities

REQUIREMENT REFERENCE

CONCLUSION

Cross Reference / Comment

1. The project shall assist Parties included in Annex I in achieving compliance with part of their emission reduction commitment under Art. 3

Kyoto Protocol Art.12.2

Outstanding issue It is envisaged that the project will receive a letter of approval by the investor country before sending a request for registration.

2. The project shall assist non-Annex I Parties in achieving sus-tainable development and shall have obtained confirmation by the host country thereof

Kyoto Protocol Art. 12.2, Marrakesh Ac-cords, CDM Modalities §40a

See below Table 2, Section A.3

3. The project shall assist non-Annex I Parties in contributing to the ultimate objective of the UNFCCC

Kyoto Protocol Art.12.2.

See below Table 2, Section E.4.1

4. The project shall have the written approval of voluntary partici-pation from the designated national authorities of each party in-volved

Kyoto Protocol Art. 12.5a, Marrakesh Ac-cords, CDM Modalities §40a

See above 1. Outstanding issue

The project has been approved by the host country (Brazil) on the base of validation report, rev2. The project has not obtained such an approval from Investor Country and Brazilian government so far. No documentation has been submitted to the validation team.

5. The emission reductions shall be real, measurable and give long-term benefits related to the mitigation of climate change

Kyoto Protocol Art. 12.5b

See below Table 2, Section E


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CONCLUSION


6. Reduction in GHG emissions shall be additional to any that would occur in absence of the project activity, i.e. a CDM pro-ject activity is additional if anthropogenic emissions of green-house gases by sources are reduced below those that would have occurred in the absence of the registered CDM project ac-tivity

Kyoto Protocol Art. 12.5c, Marrakesh Ac-cords, CDM Modalities §43

See below Table 2, Section B.2

7. Potential public funding for the project from Parties in Annex I shall not be a diversion of official development assistance

Marrakech Ac-cords

þ The funding for the project does not lead to a diversion of official development assistance as ODA does not contribute to the financ-ing of the project.

8. Parties participating in the CDM shall designate a national au-thority for the CDM

Marrakech Ac-cords, CDM Modalities §29

See above 1. Outstanding issue

Brazil as Host Country has a des-ignated national authoritiy (DNA) for the CDM in place. Investor Country shall have a designated national authoritiy (DNA) for the CDM in place

9. The host country shall be a Party to the Kyoto Protocol Marrakech Ac-cords, CDM Modalities §30

þ Brazil has ratified the Kyoto Pro-tocol on August 23, 2002.

10. Comments by local stakeholders shall be invited, a summary of these provided and how due account was taken of any com-ments received

Marrakech Ac-cords, CDM Modalities §37b

See below Table 2, Section G

11. Documentation on the analysis of the environmental impacts of the project activity, including transboundary impacts, shall be

Marrakech Ac- See below Table 2, Section F


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CONCLUSION


submitted, and, if those impacts are considered significant by the project participants or the Host Party, an environmental im-pact assessment in accordance with procedures as required by the Host Party shall be carried out.

cords, CDM Modalities §37c

12. Baseline and monitoring methodology shall be previously ap-proved by the CDM Methodology Panel

Marrakech Ac-cords, CDM Modalities §37e

See below Table 2, Section B.1.1 and D.1.1

13. Provisions for monitoring, verification and reporting shall be in accordance with the modalities described in the Marrakech Ac-cords and relevant decisions of the COP/MOP

Marrakech Ac-cords, CDM Modalities §37f

See below Table 2, Section D

14. Parties, stakeholders and UNFCCC accredited NGOs shall have been invited to comment on the validation requirements for minimum 30 days, and the project design document and comments have been made publicly available

Marrakech Ac-cords, CDM Modalities, §40

þ TÜV SÜD published the project documents on its website on May 3, 2005 and invited comments within 30 days, until June 3, 2005 by Parties, stakeholders and non-governmental organisations. Given comments have been made publicly available.

15. A baseline shall be established on a project-specific basis, in a transparent manner and taking into account relevant national and/or sectoral policies and circumstances

Marrakech Ac-cords, CDM Modalities, §45c,d


16. The baseline methodology shall exclude to earn CERs for de-creases in activity levels outside the project activity or due to force majeure

Marrakech Ac-cords, CDM



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Modalities, §47 17. The project design document shall be in conformance with the

UNFCCC CDM-PDD format Marrakech Ac-cords, CDM Modalities, Ap-pendix B, EB Decisions

þ The PDD is in conformance with the CDM Project Design Docu-ment (version 02).


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Table 2 Requirements Checklist

CHECKLIST QUESTION Ref. MoV* COMMENTS Draft Concl

Final Concl

A. General Description of Project Activity The project design is assessed.

A.1. Project Boundaries Project Boundaries are the limits and borders defining

the GHG emission reduction project.

A.1.1. Are the project’s spatial (geographical) bounda-ries clearly defined?

1,2,34,5, 9,

10, 11

DR, I

The project’s spatial boundaries are clearly described for the project installation and re-spective emissions reduction through electricity generation by renewable energy. Clarification request: The boundaries of the regional grid should be described very detailed; the connections to other grids should be clearly identified

CR1

þ

A.1.2. Are the project’s system (components and facili-ties used to mitigate GHGs) boundaries clearly defined?

1,2,34,5, 9,

10, 11

DR, I

Yes, the Technical description in the PDD gives a good impression of the project’s system.

þ þ


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A.2. Technology to be employed Validation of project technology focuses on the project

engineering, choice of technology and competence/ maintenance needs. The validator should ensure that environmentally safe and sound technology and know-how is used.

A.2.1. Does the project design engineering reflect cur-rent good practices?

1,2,34,5, 12

DR, I

Yes, the employed technology does reflect current good practice concerning the instal-lation and operation of hydro power plants. The design has been professionally devel-oped. The validation of the compatibility of the single components was done by the op-erator before taking over the responsibilities from the supplier.

þ þ

A.2.2. Does the project use state of the art technology or would the technology result in a significantly better performance than any commonly used technologies in the host country?

1,2,34,5

DR, I

The project uses state of the art technology. The technical description includes the fol-lowing technical information and data:

• maximum and minimum flow rates of the river over a longer time period

• the average flow rate of the river • number of turbines • the maximum and minimum flow rate of

the turbines


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• the maximum head of water • the volume of reservoir, • the maximum operating volume; • the allowed maximum and minimum

level of the reservoir • Company which is the operator of the

power plants Clarification Request: It is necessary to indicate in the PDD also the minimum flow required for the turbine (per turbine and total), so that it is possible to compare the values with the dry seasons flow rate which is a criteria in Brazil to justify if the projects is a run-of-river plant.

CR2

þ

A.2.3. Is the project technology likely to be substituted by other or more efficient technologies within the project period?

1,2,34,5

DR, I

It is not likely that the project technology will be substituted by a more efficient technol-ogy.

þ þ

A.2.4. Does the project require extensive initial training and maintenance efforts in order to work as presumed during the project period?

1,2,34,5, 14

DR, I

During the audit it was moreover reported that staff will receive training regarding the technical operation of the new power plant. Additional the project will create new work-ing places for qualified personnel.

þ þ


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A.2.5. Does the project make provisions for meeting training and maintenance needs?

1,2,34,5, 14

DR, I

Yes, training of the local staff has been pro-vided Alstom, the deliverer of power tech-nology. ARAPUCEL has developed a preventive and conditioned-based maintenance. Clarification request: The relevant indicators of preventive and conditioned based maintenance program should be delivered to the validation team.

CR3 þ

A.3. Contribution to Sustainable Development The project’s contribution to sustainable development is assessed.

A.3.1. Is the project in line with relevant legislation and plans in the host country?

1,2,34,5,

6,7,8

DR, I

Yes, the project complies with the environ-mental legislation in Brazil. The licenses re-quired are available, besides the operating license of Ombreira, which can not be is-sued before the construction phase is fin-ished. Clarification Request: The operating license of Ombreira should be submitted to the validation team as soon as available.

CR4

þ

A.3.2. Is the project in line with host-country specific CDM requirements?

1,2,34,5

DR, I

Brazil has so far not published any specific CDM requirements.

þ þ


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A.3.3. Is the project in line with sustainable develop-ment policies of the host country?

1,2,34,5,

DR, I

Yes, the project is in line with the sustain-able development policies of Brazil.

þ þ

A.3.4. Will the project create other environmental or social benefits than GHG emission reductions?

1,2,34,5,

6,7,8

DR, I

Yes. It creates benefits by improvement of infrastructure and creating additional jobs especially during period of construction.

þ þ

B. Project Baseline The validation of the project baseline establishes whether the selected baseline methodology is appropriate and whether the selected baseline represents a likely baseline scenario.

B.1. Baseline Methodology It is assessed whether the project applies an appropri-ate baseline methodology.

B.1.1. Is the baseline methodology previously ap-proved by the CDM Methodology Panel?

1,2,34,5

DR, I

Yes, the project is based on an approved methodology: ACM0002 “Methodology for grid-connected electricity generation from renewable sources”.

þ þ

B.1.2. Is the baseline methodology the one deemed most applicable for this project and is the ap-propriateness justified?

1,2,34,5

DR, I

Yes, the methodology is one out of two ex-isting for the respective project type being most applicable for this project.

þ þ


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B.2. Baseline Determination The choice of baseline will be validated with focus on whether the baseline is a likely scenario, whether the project itself is not a likely baseline scenario, and whether the baseline is complete and transparent.

B.2.1. Is the application of the methodology and the discussion and determination of the chosen baseline transparent?

1,2,34,5

DR, I

Yes, the application is transparent. It is shown, that the hydro power plants comply with the definition of run-of-river-plants in Brazil.

þ þ

B.2.2. Has the baseline been determined using con-servative assumptions where possible?

1,2,34,5

DR, I

Yes, the baseline is mainly determined us-ing conservative assumptions.

þ þ

B.2.3. Has the baseline been established on a project-specific basis?

1,2,34,5

DR, I

Yes, the baseline has mainly been based on project specific data. Regional grid data is used.

þ þ

B.2.4. Does the baseline scenario sufficiently take into account relevant national and/or sectoral poli-cies, macro-economic trends and political aspi-rations?

1,2,34,5, 17

DR, I

Yes, the baseline scenario sufficiently takes into account the respective effects. The subsystem South/Southeast/Midwest-grid has only few connections to foreign countries and to other subsystems. The im-port of electricity from foreign countries is very low or even negative (export). The ex-change to other subsystem is not specified but limited.

þ þ

B.2.5. Is the baseline determination compatible with 1,2,3 DR, See comment B.2.2 þ þ


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the available data? 4,5, 17

I

B.2.6. Does the selected baseline represent the most likely scenario among other possible and/or dis-cussed scenarios?

1,2,34,5, 17

DR, I

Yes, the baseline does represent a likely scenario in the non project case as it con-forms to all legal requirements and the pre-vailing practice. Corrective action request: In Step 4. “Common Practice analysis” it should be shown that other small hydro power plants, which are under construction or still under development, are comparable or not comparable with the project itself.

CAR1

þ

B.2.7. Is it demonstrated/justified that the project activ-ity itself is not a likely baseline scenario (e.g. through (a) a flow-chart or series of questions that lead to a narrowing of potential baseline op-tions, (b) a qualitative or quantitative assess-ment of different potential options and an indica-tion of why the non-project option is more likely, (c) a qualitative or quantitative assessment of one or more barriers facing the proposed project activity or (d) an indication that the project type is not common practice in the proposed area of implementation, and not required by a Party’s legislation/regulations)?

1,2,34, 5, 15, 16, 18

DR, I

The project demonstrates via an economic analysis and the description of various bar-riers that it is not the baseline scenario. Step 0 of the additionality test shows that CDM was considered before starting the project. The decision to set up the project took place in the end of 2000 as the investor bought a kind of license to utilize the water. Corrective Action Request: The project has been partially implemented although a registration of the project as a CDM activity has not taken place. Please describe in chapter B2 (i.e. as step 0) and

CAR2

þ


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based on defined documents how the CDM has been taken into account from the be-ginning of the project in order to demon-strate the additionality of the project.

B.2.8. Have the major risks to the baseline been identi-fied?

1,2,34, 5

DR, I

No. Major risks are not explicitly mentioned in the PDD. Corrective action request: The major risks to the baseline should be discussed in the PDD.

CAR3

þ

B.2.9. Is all literature and sources clearly referenced? 1,2,34, 5

DR, I

Yes, references have mainly been made to all data sources used.

þ þ

C. Duration of the Project/ Crediting Period It is assessed whether the temporary boundaries of the pro-ject are clearly defined.

C.1.1. Are the project’s starting date and operational lifetime clearly defined and reasonable?

1,2,34, 5

DR, I

The project starting date is exactly defined in September 2002. The operational lifetime of the project is an-nounced to be 20 years. This timeframe is very pessimistic. Usually hydro power plants are in operation more than 40 years.

þ þ

C.1.2. Is the assumed crediting time clearly defined and reasonable (renewable crediting period of max. three x 7 years or fixed crediting period of

1,2,34, 5

DR, I

Yes, the crediting period is a renewable pe-riod of 7 years. The starting date of crediting time is clearly

þ þ


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max. 10 years)? defined in September 2002.

D. Monitoring Plan The monitoring plan review aims to establish whether all relevant project aspects deemed necessary to monitor and report reliable emission reductions are properly addressed ((Blue text contains requirements to be assessed for op-tional review of monitoring methodology prior to submission and approval by CDM EB).

D.1. Monitoring Methodology It is assessed whether the project applies an appro-priate baseline methodology.

D.1.1. Is the monitoring methodology previously ap-proved by the CDM Methodology Panel?

20, 21

DR, I

Yes. þ þ

D.1.2. Is the monitoring methodology applicable for this project and is the appropriateness justified?

DR, I

Yes. þ þ

D.1.3. Does the monitoring methodology reflect good monitoring and reporting practices?

1,2,34, 5

DR, I

Yes, in the PDD the monitoring methodol-ogy is described and reflects good monitor-ing practice.

þ þ

D.1.4. Is the discussion and selection of the monitoring methodology transparent?

1,2,34, 5

DR, I

Yes. þ þ


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D.2. Monitoring of Project Emissions It is established whether the monitoring plan provides for reliable and complete project emission data over time.

D.2.1. Does the monitoring plan provide for the collec-tion and archiving of all relevant data necessary for estimation or measuring the greenhouse gas emissions within the project boundary during the crediting period?

1,2,34, 5

DR, I

Yes, no indicators have been defined and no project emissions are monitored accord-ing to the monitoring plan as such emis-sions are not to be expected.

þ þ

D.2.2. Are the choices of project GHG indicators rea-sonable?

1,2,34, 5

DR, I

See above þ þ

D.2.3. Will it be possible to monitor / measure the specified project GHG indicators?

1,2,34, 5

DR, I

See above þ þ

D.2.4. Will the indicators give opportunity for real measurements of achieved emission reduc-tions?

1,2,34, 5

DR, I

See above þ þ

D.2.5. Will the indicators enable comparison of project data and performance over time?

1,2,34, 5

DR, I

This is more relevant for the baseline indica-tors (energy generation), which will offer a proof of the project’s performance.

þ þ

D.3. Monitoring of Leakage It is assessed whether the monitoring plan provides for reliable and complete leakage data over time.

D.3.1. Does the monitoring plan provide for the collec-tion and archiving of all relevant data necessary

1,2,3 DR, Yes, no indicators have been defined and þ þ


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for determining leakage? 4, 5 I no leakage are monitored acc. to the moni-toring plan as such leakage are not to be expected

D.3.2. Have relevant indicators for GHG leakage been included?

1,2,34, 5

DR, I

See comment D.3.1 þ þ

D.3.3. Does the monitoring plan provide for the collec-tion and archiving of all relevant data necessary for determining leakage?

1,2,34, 5

DR, I


D.3.4. Will it be possible to monitor the specified GHG leakage indicators?

1,2,34, 5

DR, I


D.4. Monitoring of Baseline Emissions It is established whether the monitoring plan provides for reliable and complete project emission data over time.

D.4.1. Does the monitoring plan provide for the collec-tion and archiving of all relevant data necessary for determining baseline emissions during the crediting period?

1,2,34, 5

DR, I

Yes, the monitoring plan does include all relevant parameters to determine baseline emissions according to the requirements of the methodology.

þ þ

D.4.2. Is the choice of baseline indicators, in particular for baseline emissions, reasonable?

1,2,34, 5

DR, I

Yes. þ þ

D.4.3. Will it be possible to monitor the specified base-line indicators?

1,2,34, 5, 12, 13

DR, I

Yes, it is possible to monitor and/or meas-ure the currently specified baseline indica-tors.

þ þ


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D.5. Monitoring of Sustainable Development Indicators/ Environmental Impacts

It is checked that choices of indicators are reason-able and complete to monitor sustainable perform-ance over time.

D.5.1. Does the monitoring plan provide the collection and archiving of relevant data concerning envi-ronmental, social and economic impacts?

1,2,34, 5, 19

DR, I

No, as a monitoring of such data is not re-quired by the applied monitoring methodol-ogy. Each year the operator has acc. to legisla-tion to provide an environmental report, which is containing an investigation of all relevant environmental impacts.

þ þ

D.5.2. Is the choice of indicators for sustainability de-velopment (social, environmental, economic) reasonable?

DR, I

See comment D.5.1. þ þ

D.5.3. Will it be possible to monitor the specified sus-tainable development indicators?

DR, I


D.5.4. Are the sustainable development indicators in line with stated national priorities in the Host Country?

DR, I



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D.6. Project Management Planning It is checked that project implementation is properly prepared for and that critical arrangements are ad-dressed.

D.6.1. Is the authority and responsibility of project management clearly described?

1,2,34, 5, 14

DR, I

The aspects regarding future responsibilities and quality assurance are roughly de-scribed.

þ þ

D.6.2. Is the authority and responsibility for registra-tion, monitoring, measurement and reporting clearly described?

1,2,34, 5, 14

DR, I

The responsibilities for registration, monitor-ing, measurement and reporting are not ex-plicit described in the PDD. Corrective action request: The PDD should describe the responsibili-ties for registration, monitoring, measure-ment and reporting of all relevant data. I.e. it should be mentioned that CEMAT is re-sponsible for measuring the delivered elec-tricity to the grid and which standard for calibration is to comply; ARAPUCEL is measuring exported electricity itself as con-trol measurement.

CAR4

þ

D.6.3. Are procedures identified for training of monitor-ing personnel?

DR, I

See comment D.6.2 see CAR4

þ

D.6.4. Are procedures identified for emergency pre- 1,2,3 DR, Unintended emissions are not expected; no þ þ


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paredness for cases where emergencies can cause unintended emissions?

4, 5 I emergency procedures are necessary.

D.6.5. Are procedures identified for calibration of moni-toring equipment?

DR, I

See comment D.6.2

CAR4 þ

D.6.6. Are procedures identified for maintenance of monitoring equipment and installations?

DR, I

See comment D.6.2 CAR4 þ

D.6.7. Are procedures identified for monitoring, meas-urements and reporting?

DR, I


D.6.8. Are procedures identified for day-to-day records handling (including what records to keep, stor-age area of records and how to process per-formance documentation)

DR, I


D.6.9. Are procedures identified for dealing with possi-ble monitoring data adjustments and uncertain-ties?

DR, I


D.6.10. Are procedures identified for review of reported results/data?

DR, I


D.6.11. Are procedures identified for internal audits of GHG project compliance with operational re-quirements where applicable?

DR, I


D.6.12. Are procedures identified for project perform-ance reviews before data is submitted for verifi-cation, internally or externally?

DR, I


D.6.13. Are procedures identified for corrective actions in order to provide for more accurate future

DR, See comment D.6.2 CAR4 þ


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monitoring and reporting? I

E. Calculation of GHG Emissions by Source It is assessed whether all material GHG emission sources are addressed and how sensitivities and data uncertainties have been addressed to arrive at conservative estimates of projected emission reductions.

E.1. Predicted Project GHG Emissions The validation of predicted project GHG emissions fo-

cuses on transparency and completeness of calcula-tions.

E.1.1. Are all aspects related to direct and indirect GHG emissions captured in the project design?

1,2,34, 5

DR, I

No parameters have been defined and no project emissions are calculated as such emissions are not to be expected.

þ þ

E.1.2. Are the GHG calculations documented in a complete and transparent manner?

DR, I

See comment E 1.1

þ þ

E.1.3. Have conservative assumptions been used to calculate project GHG emissions?

DR, I

See comment E 1.1

þ þ

E.1.4. Are uncertainties in the GHG emissions esti-mates properly addressed in the documenta-tion?

DR, I

See comment E 1.1

þ þ

E.1.5. Have all relevant greenhouse gases and source categories listed in Kyoto Protocol Annex A been evaluated?

DR, I

See comment E 1.1

þ þ


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E.2. Leakage It is assessed whether there leakage effects, i.e. change of emissions which occurs outside the pro-ject boundary and which are measurable and attrib-utable to the project, have been properly assessed.

E.2.1. Are potential leakage effects beyond the chosen project boundaries properly identified?

1,2,34, 5

DR, I

Leakage calculations are not requested þ þ

E.2.2. Have these leakage effects been properly ac-counted for in calculations?

DR, I

See comment E 2.1

þ þ

E.2.3. Does the methodology for calculating leakage comply with existing good practice?

DR, I

See comment E 2.1

þ þ

E.2.4. Are the calculations documented in a complete and transparent manner?

DR, I

See comment E 2.1

þ þ

E.2.5. Have conservative assumptions been used when calculating leakage?

DR, I

See comment E 2.1

þ þ

E.2.6. Are uncertainties in the leakage estimates prop-erly addressed?

DR, I

See comment E 2.1

þ þ


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E.3. Baseline Emissions The validation of predicted baseline GHG emissions focuses on transparency and completeness of calcu-lations.

E.3.1. Have the most relevant and likely operational characteristics and baseline indicators been chosen as reference for baseline emissions?

1,2,34, 5, 17

DR, I

Yes, all data is based on historic values (unless delivered electricity), which have been verified during the validation process.

þ þ

E.3.2. Are the baseline boundaries clearly defined and do they sufficiently cover sources and sinks for baseline emissions?

1,2,34, 5

DR, I

Yes. þ þ

E.3.3. Are the GHG calculations documented in a complete and transparent manner?

1,2,34, 5

DR, I

Yes þ þ

E.3.4. Have conservative assumptions been used when calculating baseline emissions?

1,2,34, 5

DR, I

There is no indication, that conservative as-sumptions have been used for calculating baseline emissions. Clarification request: It should be provided, which conservative assumptions were used by calculating the baseline emissions.

CR5

þ

E.3.5. Are uncertainties in the GHG emission esti-mates properly addressed in the documenta-tion?

1,2,34, 5

DR, I

No uncertainties are discussed by the PDD Clarification request: Which uncertainties have to be considered for the GHG emission estimates?

CR6

þ


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E.3.6. Have the project baseline(s) and the project emissions been determined using the same ap-propriate methodology and conservative as-sumptions?

1,2,34, 5

DR, I

Yes. þ þ

E.4. Emission Reductions Validation of baseline GHG emissions will focus on methodology transparency and completeness in emis-sion estimations.

E.4.1. Will the project result in fewer GHG emissions than the baseline scenario?

1,2,34, 5

DR, I

Yes. þ þ

F. Environmental Impacts Documentation on the analysis of the environmental im-pacts will be assessed, and if deemed significant, an EIA should be provided to the validator.

F.1.1. Has an analysis of the environmental impacts of the project activity been sufficiently described?

1,2,34, 5

DR, I

Yes, the environmental impacts are men-tioned. The description of the relevant im-pacts in detail is done in the environmental report.

þ þ

F.1.2. Are there any Host Party requirements for an Environmental Impact Assessment (EIA), and if yes, is an EIA approved?

1,2,34, 5, 19

DR, I

Requirements for EIAs exist in the host country and have already been fulfilled. The obliged preparation of a “Preliminary Envi-ronmental Report” has been completed. Annually the supervision of some impacts

þ þ


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Final Concl

must be monitored and reported in an envi-ronmental report.

F.1.3. Will the project create any adverse environ-mental effects?

1,2,34, 5

DR, I

Yes, the project will create few adverse en-vironmental effects. The environmental im-pacts are not considered significant.

þ þ

F.1.4. Are transboundary environmental impacts con-sidered in the analysis?

1,2,34, 5

DR, I

No, but it can be confirmed that there are no such impacts.

þ þ

F.1.5. Have identified environmental impacts been ad-dressed in the project design?

1,2,34, 5

DR, I

Yes, the project design addresses environ-mental impacts. I.e. Run-of-River-Plants with small designed maximum flow through turbines; Biological minimum flow through the weirs; deforestation of flooded areas, reforestation of construction sites

þ þ

F.1.6. Does the project comply with environmental leg-islation in the host country?

1,2,34, 5

DR, I

Yes, the project complies with the environ-mental legislation in Brazil. The licenses re-quired are available.

þ þ

G. Stakeholder Comments The validator should ensure that a stakeholder com-ments have been invited and that due account has been taken of any comments received.

G.1.1. Have relevant stakeholders been consulted? 1,2,34, 5

DR, I

Yes, acc. to Brazilian legislation ARAPUCEL has conducted a stakeholder process. Clarification request:

CR7

þ


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Final Concl

The local stakeholder process for hydro power plant Ombreira should be finalised before finishing the validation of the PDD. All such information has to be added t oa revised PDD.

G.1.2. Have appropriate media been used to invite comments by local stakeholders?

1,2,34, 5

DR, I

Yes þ þ

G.1.3. If a stakeholder consultation process is required by regulations/laws in the host country, has the stakeholder consultation process been carried out in accordance with such regulations/laws?

1,2,34, 5

DR, I

Yes, ARAPUCEL did not receive any comments during the licensing process. In addition to the UNFCCC global stake-holder process, this project was open for comments from locals at the same time. Any comments will be disclosed after valida-tion. Clarification request: The local comments should be delivered to the validation team.

CR8

þ

G.1.4. Is a summary of the stakeholder comments re-ceived provided?

1,2,34, 5

DR, I

No comments received þ þ

G.1.5. Has due account been taken of any stakeholder comments received?

1,2,34, 5

DR, I

Yes. þ þ


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Table 3 Resolution of Corrective Action and Clarification Requests Draft report clarifications and corrective action requests by validation team

Ref. to checklist question in table 1 and 2

Summary of project owner response Validation team conclusion

Outstanding Issue No. 1: The project has not obtained an approval from Investor Country and Brazilian govern-ment so far. No such document has been submitted to the validation team.

Table 1 A letter of approval at least by the host country will have to be submitted before requesting for registration.

Clarification request No. 1: The boundaries of the regional grid should be described more detailed; the connections to other grids should be clearly identified and illustrated.

The PDD contains a detailed map of S-SE-CO grid. Part of the electricity consumed in the country is imported from other coun-tries. Argentina, Uruguay and Paraguay supply a very small amount of the elec-tricity consumed in Brazil. In 2003 around 0.1% of the electricity was im-ported from these countries. In 2004 Brazil exported electricity to Argentina which was experiencing a shortage pe-riod.

The energy imported from other coun-tries does not affect the boundary of the project and the baseline calculation. This issue is considered to be resolved.

Clarification Request No. 2: It is necessary to indicate in the PDD also the minimum flow required for the turbine (per

The minimum flow rates of the turbines are indicated in the revised PDD.

This issue is considered to be resolved.


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Draft report clarifications and corrective action requests by validation team



turbine and total), so that it is possible to compare the values with the dry seasons flow rate which is a criteria in Brazil to justify if the projects is a run-of-river plant. Clarification request No. 3: The relevant indicators of preventive and conditioned based maintenance program should be delivered to the validation team.

O&M procedures were provided to the audit team.

The relevant indicators of preventive and conditioned based maintenance program are mentioned. These are i.e. thermography, chromatography of soluble gases, physically and chemi-cally analysis of oil. Theses issue is considered to be re-solved.

Clarification Request No. 4: The operating license of Ombreira should be submitted to the validation team as soon as available.

Operating Licence of PCH Ombreiras was provided to the audit team.


Clarification request No. 5: Conservative assumptions in determining the baseline should be illustrated.

In Arapucel project baseline determina-tion, it was assumed that for all the electricity imported from other con-nected electricity system, the emission factor is zero. Through the severe electricity shortage

The baseline emissions calculation de-termines factors according to the ap-plied methodology. The used emission factors can be regarded being derived transparently using default values. Nonetheless it will be necessary during verification to discuss the availability of


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from June 2001 to February 2002 the offer of electricity in the S-SE-CO elec-tric system has been too high that the demand of electricity has not returned to the level of 2001. Therefore, the im-pact of the Build Margin on the defini-tion of the Combined Margin is much reduced.

more accurate figures for modern plants which will show higher efficien-cies. Hence accurate figure for modern plants will be considered to be more conservative. This issue is considered to be resolved.

Corrective action request No. 1: In Step 4. “Common Practice analysis” should be shown that the small hydro power plants, which are under construction or still under development, are comparable or not comparable with the project itself.

A list of small hydro power plants which were currently implemented was estab-lished by project developer and pro-vided to the audit team. The new projects under development in Brazil are inside the PROINFA-Program.

According to the project developer the currently implemented small hydro power plants are foreseen as CDM pro-jects as far as the information about those projects are available. Other projects under development are inside the PROINFA-Program, which funds renewable energy projects. But due to publicly available documents the Brazilian government would even ac-cept CDM registration for project under the PROFINA-Program. Hence it is proven that additional incentive is re-quired to facilitate investment in small


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hydro power plants. This issue is considered to be resolved.

Corrective Action Request No. 2: The project has been partially implemented although a registration of the project as a CDM activity has not taken place. Please de-scribe in chapter B2 (i.e. as step 0) and based on defined documents how the CDM has been taken into account from the begin-ning of the project in order to demonstrate the additionality of the project.

At the time the project started its con-struction (2001) the EB was not estab-lished yet and when the project started its operation (2002) there was no ap-proved methodology for this kind of pro-ject. But, although those enormous un-certainties presented at the time, such as the entry into force of the Protocol, size of the market/price of the CERs, no nominated executive board, lack of ap-proved baseline/monitoring methodolo-gies and so on, the project owners took the risk and seriously considered the incentive from the CDM in the decision to proceed with the activity. The project sponsors were already ana-lyzing the CDM for other projects as described in the PDD. The transfer of the ownership to BK Energia Participações Ltda. is shown by the agreement from ANEEL, July

The transfer of the ownership to the project sponsor is accepted as evi-dence that the project started after the issuance of a non-objection letter by the Brazilian Interministerial Commission on Global Climate Change for the Pi-ratini Project, a further prospective CDM project currently under validation having partly the same project partici-pants. This issue is considered to be resolved.


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2001. The request to ANEEL was sub-mitted April 2001.

Corrective action request No.3: The major risks to the baseline should be discussed in the PDD.

We follow exactly what it is described in the methodology and didn’t find any major risk to the baseline. Now, the Ex-ecutive Board is requesting to all pro-ject to renew the baseline determination every year, “ex-post”.


Corrective action request No. 4: The PDD should describe the responsibilities for registration, monitoring, measurement and reporting the relevant date. I.e. it should be mentioned that CEMAT is responsible for measuring the delivered electricity to the grid and which standard for calibration is to com-ply; ARAPUCEL is measuring exported elec-tricity itself as control measurement.

The electricity delivered to the grid is monitored by the Project as well as by the energy buyer. CEMAT is responsible for annually cali-bration. Monitoring and reporting will be done by Brennand Energia, the holding com-pany that controls the three power plants. There’s nobody specific se-lected for this job yet.

The revised PDD describes that elec-tricity delivered to the grid is monitored by the project as well as by the energy buyer (CEMAT). ARAPUCEL is meas-uring exported electricity itself as con-trol measurement. Responsibilities are sufficiently clarified. This issue is considered to be resolved.

Clarification request No. 6: Which uncertainties are in the GHG emission estimates? Please add information concern-

See new version of the PDD.

The estimation of emissions reductions is done by an MS Excel spreadsheet correctly implementing the algorithm


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ing in the GHG emission reductions estima-tion.

and procedures provided by ACM0002. But data input (plant efficiencies) con-cerning the emissions of thermal power plants connected to the grid is based on literature figures not being considered as conservative especially for recently installed gas fired power plants. In ab-sence of available data the project de-veloper decided for keeping provable data instead of more conservative esti-mations. Anyway this discussion should have a stronger focus during verifica-tion. At that time such a risk for having an (even small) overestimation will not be acceptable. With regard to the statements given above the issue is considered to be re-solved.

Clarification request No. 7: If the local stakeholder process for hydro power plant Ombreira was conducted before finishing the validation of the PDD, this infor-

In the revised PDD it is indicated that while the PDD the project was pub-lished on the UNFCCC website the pro-

Information on a separate local stake-holder process has been provided to-


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mation should be added to the revised PDD. ject proponent has sent letters to the relevant local stakeholders in order to invite their comments.

gether with the revised PDD. The issue is considered to be resolved

Clarification request No. 8: The local comments should be delivered to the validation team.

The project didn’t receive any com-ments from the local stakeholders.


Validation of the ARAPUCEL Project

Annex 2

Information Reference List

Final

Report Rev. 02

2006-06-09

Validation of the “ARAPUCEL Project” in Mato Grosso, Brazil Information Reference List

Page 1 of 3

TÜV SÜD INDUSTRIE SERVICE GMBH TÜV SÜD GROUP

Reference No.

Document or Type of Information

1 On-site interview at the offices of EcoInvest in Sao Paulo with the project developer conducted on December 8, 2004 by auditing team of TÜV SÜD Validation team on-site: Klaus Nürnberger TÜV Industrie Service GmbH TÜV SÜD Group Werner Betzenbichler TÜV Industrie Service GmbH TÜV SÜD Group Odair Roveri Ingwaass Qualidade Continua Interviewed persons: Ricardo Esparta Director, Ecoinvest Carbon Assessoria Ltda. Fernando de Souza Machado Project Manager, Ecoinvest Carbon Assessoria Ltda.

2 On-site interview at the offices of EcoInvest in Sao Paulo with the project developer conducted on April 21, 2005 by auditing team of TÜV SÜD Validation team on-site: Klaus Nürnberger TÜV Industrie Service GmbH TÜV SÜD Group Werner Betzenbichler TÜV Industrie Service GmbH TÜV SÜD Group Odair Roveri Ingwaass Qualidade Continua Interviewed persons:

Ricardo Esparta Director, Ecoinvest Carbon Assessoria Ltda. Fernando de Souza Machado Project Manager, Ecoinvest Carbon Assessoria Ltda.

3 On-site audit at the plant sites of the project, conducted on April 20, 2005: Validation team on-site: Klaus Nürnberger TÜV Industrie Service GmbH TÜV SÜD Group

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Page 2 of 3


Reference No.


Interviewed persons: Fernando de Souza Machado Project Manager, Ecoinvest Carbon Assessoria Ltda. Paulo de Tarso Chief Operating Officer, Brennand Energia

4 Project Design Document (published version), submitted May 2005 5 Project Design Document, submitted November, 2005 6 Operation Licence PCH Alto Jauro, Nr. 1649/2002 , 14.10.2002 7 Operation Licence PCH Indiavai, Nr. 692/2004 , 28.07.2004 8 Operation Licence PCH Ombreira, Nr. 587/2005 , 20.06.2005 9 PCH Alto Jauro , Power Purchase Agreement with CEMAT, 15.08.02

10 PCH Indiavaí: Power Purchase Agreement with CEMAT, 15.08.02 11 PCH Ombreiras, Power Purchase Agreement with CEMAT, 15.08.02 12 Information to relevant electricity meters: DADOS MEDIDORES, May 2005 13 Faturamento for PCH Indiavai and Jauru 2004, established by Brennand Energia 14 MANUTENÇÃO EMPRESAS BRENNAND ENERGIA, Description of managing maintenance, provided May 2005 15 List of small hydro power plants, which are currently implemented, prepared by EcoInvest, 2005 16 Financial analysis of PCH Alto Jauro and PCH Indiavaí, provided as Excel-files, 06.10.2005 17 ONS daily dispatch information for 2002, 2003 and 2004, provided as Excel-File, 24.09.2005 18 Confirmation of ANEEL that majority shareholder was transferred from Araputanga Centrais Elétricas S. A. to project sponsor BK

Energia, 27.07.2001 19 Parecer Tecnico established by FEMA, 098/COINF/DIMI/2004 and 098/COINF/DIMI/2004 and 098/COINF/DIMI/2004, 20 UNFCCC homepage http://www.unfccc.int 21 Approved and consolidated baseline methodology ACM0002 - “Consolidated baseline methodology for grid-connected electricity

generation from renewable sources”, UNFCCC, 2005 22 Validation and Verification Manual, IETA/PCF http://www.vvmanual.info

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Page 3 of 3


Reference No.


23 Project Design Document, submitted June, 2006